The e-voting of unit-holders of six debt schemes of Franklin Templeton Mutual Fund (FTMF), which started on 26th December and would conclude on 29 December 2020, appears to be turned into a farce by FTMF, especially when the market regulator has been playing the role of a mute spectator. The Securities and Exchange Board of India (SEBI) has appointed TS Krishnamurthy, former chief election commissioner (CEC) as observer for the e-voting process and issued a statement on 26th December when the e-voting process had commenced. This move came a day after the Chennai Financial Markets and Accountability (CFMA) moved an urgent application before the Supreme Court (SC) against SEBI for not appointing an observer for the e-voting.
What is more startling is the design of the e-voting process, especially the use of green colour for 'Yes' and red colour for 'No' option with appropriate wording accompanying each. Next to the green ‘Yes’ button are words framed in an affirmative and comforting manner: “Means opting for an orderly winding-up of the scheme with a potential to realise fair value from the assets." Next to the red ‘No’ button are words framed in a scare-mongering and negative manner: “Means opting for the Scheme to be re-opened, potentially leading to distress sale of assets and loss of value.”
This colouring and textual framing makes the entire e-voting process biased towards FTMF since we all have the perception of green signal and red signal embedded in our minds.
Everyone who sees a green signal at a traffic post will go ahead and would stop after seeing a red signal. Therefore, the use of this specific colour coding by FTML appears a deliberate attempt to influence the voting process.
The CFMA, an investor protection body fighting for the cause of investors, claims that the appointment of an observer for e-voting by SEBI is an afterthought. The SEBI release says, Mr Krishnamurthy was appointed as observer on 18 December 2020, following an order from the Supreme Court.
However, this appointment was made known by SEBI only on 26 December 2020 through the release, after the e-voting process had started and when it was a weekly off at the market regulator's office.
Also, to assist the observer, the market regulator constituted a technical assistance team comprising BN Sahoo, chief general manager (CGM) of SEBI; Nayana Ovalekar, chief operating officer (COO) of Central Depository Services Ltd (CDSL); K Sriram, practising company secretary and scrutiniser; M Krishna and Ch E Sai Prasad, both assistant directors of the Hyderabad-based Central Forensic Science Laboratory (CFSL).
In a release on 25th December, CFMA says it has filed an urgent interim application before the SC since SEBI failed to appoint an observer for voting that was scheduled to start from 26 December 2020. "The concern of CFMA is, though the aforesaid order was passed on the 9th of this month, there has been no apparent steps taken by SEBI to appoint an observer. FTMF choosing a weekend for voting and SEBI remaining silent on the observer shows that the duo does not want to keep the voting process transparent and unbiased," the investor organisation says.
The SEBI release issued on 26th December says, Mr Krishnamurthy is appointed as observer on 18 December 2020. The question is: Why did SEBI, which is normally active in making its appointment known on the same day, wait for eight days for making the appointment of Mr Krishnamurthy known to investors of FTMF?
Franklin Templeton is seeking a simple-majority consent of its unit-holders to wind up six debt funds it had shut in April this year, which locked over Rs28,000 crore in the biggest forced fund closure ever in India.
The CFMA alleged that Sanjay Sapre, president of Franklin Templeton India and Santosh Kamath, managing director (MD) and chief investment officer (CIO) of FTMF-fixed income, have been pressuring unit-holders of six shut schemes to vote ‘YES' for winding up, hiding their own conflict of interests.
‘'Will the paid advisers compensate for the 50% loss to the unit-holders? At the time of subscribing to the schemes, these advisers have minted money and are now getting more money by coercing the investors to vote ‘Yes'. Will they take the responsibility of returning 100% money to the unit-holders? Will FTMF reverse the fees charged by it to compensate the losses of the unit-holders? Franklin Templeton has charged approximately Rs4,500 crore fees over the years,'' it asked.
The matter of loss will be pursued judicially along with a thorough investigation by the Economic Offences Wing (EOW), Chennai, the CFMA said, adding that the EOW and the courts will go through the forensic audit reports.
The CFMA believed that the judiciary will ensure the best resolution for the unit-holders through proper liquidation and fixing responsibility for losses after evaluation of the forensic audit and the EOW investigation.
Earlier this month, the SC, while granting a stay on redemption requests from investors of FTMF, had directed the trustees to call a meeting of unit-holders to seek their consent within a week. On 24 October this year, the Karnataka High Court had asked Franklin Templeton Asset Management (India) Pvt Ltd (FTAMPL) to seek consent from unit-holders for winding up the six debt schemes.
Last month, Franklin Templeton Trustee Services, which initially had argued that mutual funds are empowered to wind up schemes without unit-holders' consent, sought permission from SEBI to hold a vote on the issue on 8th November.
The Karnataka High Court, in its judgement in October 2020, had said the decision of Franklin Templeton to wind up the six schemes cannot be implemented unless the consent of the unit-holders is obtained.
Earlier, on 23 April 2020, Franklin Templeton had announced shutting down six debt fund schemes due poor and illiquid investments amid the coronavirus crisis, leaving lakhs of investors in a lurch. The total assets under management (AUM) of the six schemes were over Rs25,000 crore, spread across Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.